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On 8-26-2010, this was the news:
(Reference from TheStreet.com:<b><a href="http://www.thestreet.com/_yahoo/story/10845886/1/arcsight-surges-on-ma-talk.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA">Full Story</a></b>)
CUPERTINO, Calif. (TheStreet) -- Shares of security software maker ArcSight(ARST) surged almost 30% Thursday following a news report that the company is up for sale.

ArcSight Incorporated| ARST International Business Machines Corp| IBM EMC Corporation| EMC The Wall Street Journal reports that ArcSight has put itself on the auction block. Citing people familiar with the matter, the Journal says that potential buyers, including Oracle(ORCL) and Hewlett-Packard(HPQ) could pay up to $1.5 billion for the company. EMC(EMC), IBM(IBM) and CA(CA) are also possible purchasers, it added.
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We can see that Sep vol is up 2 points today while Oct vol is down 1.3. There was already a substantial difference between second and front month vol, today that divergence opened up more than three more points.

The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/09/arst.html">in the article</a>) illustrates the vols by strike by month and makes the point even more clearly.

I've highlighted the vol difference between the ATM Sep and Oct options. As of writing, a 21 point vol difference.

Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/09/arst.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue vs HV180&#8482 - pink). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

We can see the gap up on the possible takeover news. When a takeover price for a stock is set, vol usually gets crushed as the expectation is that the stock will trade in a relatively tight range. That means being long vega can be a massive loser. Having said that...

<b>Possible Trades to Analyze</b>
Given the sharp difference in vols between the second and first months, a purchase of the Oct ATM straddle and a sale of the Sep ATM straddle is interesting.

This loses if there is a takeover or if the stock moves huge (like it did 8-26) in a day), vol crushes and the position is left long vega which goes to zero. It wins if the stock stays put right here for a week (i.e. through expo), then the position is left with an Oct ATM straddle for only $2.05.